Beyond PSLF: Additional Student Loan Forgiveness Programs

I recently received this timely guest post that highlights options for student loan forgiveness beyond the Public Service Loan Forgiveness (PSLF) program that is popular among physicians.

With medical students about to start their internships and graduating residents and fellows about to start their first jobs as attendings, student loan debt may play a prominent role in the financial lives of many readers.

Today’s author is Miranda Marquit, a respected author in the personal finance space and senior writer for Student Loan Hero. We crossed paths at FinCon last year, and I am happy to feature her writing here. Her supplied bio follows:

Miranda has been a financial journalist for more than 11 years and is a nationally-recognized financial expert. She has been featured in The Wall Street Journal, Business Insider, Inc., Fast Company, and other local and national publications. Miranda has also appeared on TV, radio, and podcasts to talk about money and investing issues. She regularly speaks at conferences and workshops and is an ambassador for Women’s Money Week.

I have no financial relationship with Miranda Marquit or Student Loan Hero and received no compensation for this guest post.

Beyond PSLF: Additional Student Loan Forgiveness Programs

As you probably know from experience, paying for medical school can result in six-figure debt, impairing your ability to reach financial independence.

The average amount of medical school debt for U.S. graduates is $189,165, according to the Association of American Medical Colleges (AAMC). And that doesn’t include undergraduate debt or the cost of forbearance during your residency.

Depending on your specialty, you could owe more than the average debt, said Ryan Inman, a financial planner who specializes in wealth services for physicians. [PoF: listen to my interview with Ryan Inman on the Financial Residency Podcast.]

“I have clients with $300,000 or $400,000 in debt by the time they finish their residency,” Inman said. “Sometimes tackling that debt requires a measured approach that includes some level of loan forgiveness so they can reach their goals of financial independence or early retirement.”

If you’re looking for help with repaying your six-figure medical debt, here’s a roundup of some programs that can move you forward with your finances.

In general, according to Inman, IDR results in long-term debt and higher repayment costs.

However, facing your student loan debt when you’re fresh out of medical school can be overwhelming, especially when you consider that the average salary for a first-year resident was $57,200 in 2017, according to Medscape.

Getting on an IDR plan can at least help you avoid the costs that come with forbearance during residency. Once you finish your residency, you can decide how to proceed with your student loans. Sticking with IDR after finishing your residency, though, can result in huge costs down the road.

An AAMC breakdown showed what repayment looks like under the Pay As You Earn program. Assuming $190,000 in federal loans and a three-year residency followed by 17 years on the plan, you’d end up repaying $388,000. You’d only earn $28,000 in loan forgiveness. The other IDR plans don’t fare much better in terms of overall cost.

Instead, Inman said there are strategies to avoid paying so much. These could help you reach financial independence much sooner, too.

What about Public Service Loan Forgiveness (PSLF)?

Before we look at other forgiveness programs, let’s quickly consider PSLF. The popular program forgives qualifying debt after 120 payments — as long as you work in a qualifying job for a nonprofit or government agency. For medical school graduates, this often means spending 10 years in a lower-paying job to get tax-free forgiveness on any remaining loan balance.

“While it sounds nice, the reality is that PSLF isn’t really practical for many physicians,” said Inman. “Earning potential is high enough that after residency you can usually get a job that will help you demolish your debt faster, especially if you look to other forgiveness programs, with shorter time-based obligations, specifically aimed at medical professionals.”

Military medical debt repayment assistance

For those willing to go into the military, there’s help available for paying off debt. Pay attention to service requirements before you sign up to make sure you understand what you’re agreeing to.

Army doctor student debt help

As a doctor in the U.S. Army, you’re accorded officer status and the privileges that come with it. Here are some of the programs offered by the Army:

Financial assistance program: If you’re still in residency, you can earn more than $45,000 a year as a grant, plus a monthly stipend of more than $2,000. You’ll have to serve when you finish, but it’s a way to reduce your debt during residency.

Active Duty Health Professions Loan Repayment Program: Get $40,000 a year for up to three years to help you pay down your medical school debt. This is on top of your salary and a bonus provided to health professionals.

Health professions special pay: If you complete a residency in a qualifying specialty, you could get up to $25,000 each year for three years.

Healthcare Professionals Loan Repayment program: You can get $40,000 a year in repayment help (up to $250,000) for satisfactory service in qualifying units or programs.

Navy doctor student debt help

The Navy also provides medical loan repayment assistance. As long as you meet service requirements, here are some programs that can be of use:

Sign-on bonus: You can get a $20,000 (minus taxes) signing bonus for joining the Navy as a health care professional.

Health Professions Loan Repayment Program: Get up to $40,000 a year (minus taxes) in medical debt forgiveness. Payments are sent directly to your lender and can reduce your debt significantly while you serve.

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Air Force residency help

In addition to a scholarship for current medical students, the Air Force offers an assistance program for residents. If you’re in residency, you can get a grant for up to $45,000 a year, plus a living expense stipend of $2,000 a month. You’re required to serve for each year you use the program, plus one extra year.

Federal medical debt repayment programs

The federal government also offers nonmilitary doctor student loan forgiveness programs. Inman pointed out that these can be desirable because commitments are usually only two or three years.

“You can get rid of a good chunk of debt through forgiveness programs in a couple years, then refinance your remaining loans to a lower rate and pay them off in a few more years, becoming financially independent a little faster,” said Inman.

Here are some of the federal medical debt repayment programs you can take advantage of:

National Institutes of Health (NIH) repayment programs: If you’re willing to devote at least two years to research, you could get up to $35,000 a year toward debt repayment. The NIH offers eight programs you can participate in, including five that allow you to work outside the government.

National Health Services Corps (NHSC) loan repayment: Depending on where you serve, your specialty, and whether you’re working full time or half-time in a clinical practice, you can get up to $50,000 in loan forgiveness for two years of service.

Indian Health Service loan repayment: In exchange for working in a needed service area that serves American Indian and Alaska Native communities, you could earn up to $40,000 in medical debt repayment.

State-based doctor student loan forgiveness

“There are programs in almost every state,” Inman said. “Look at what’s going to work well for you, and where you want to live — or can stand to live — for a few years.”

You can access state programs through the NHSC website or check the AAMC’s list of loan repayment and forgiveness programs. However, these resources don’t always list everything that’s available. Many states have their own forgiveness requirements and programs.

As with federal loan forgiveness programs, Inman suggested using a state-based forgiveness program to reduce the amount owed in debt. Then, refinance your remaining balance to a lower interest rate and a shorter term.

Consider the following states, comparing the potential awards against other loan forgiveness options. As with other medical loan forgiveness programs, Inman pointed out, you can expect to meet a minimum time requirement, as well as agree to work in an area considered to have a health care shortage or need. You might also need to practice a certain specialty.

Here are the states that have loan forgiveness options for doctors, and the amounts you could potentially receive for forgiveness:

Alaska: Up to $47,000 per year

Arizona: Up to $65,000 for a two-year commitment, plus smaller awards for subsequent years

Arkansas: Up to $80,000 for four years

California: Up to $50,000 for an initial obligation, plus smaller awards for extensions

Delaware: Up to $100,000 for a two-year contract

Georgia: Up to $25,000 per year

Hawaii: Up to your total loan amount

Idaho: Up to $100,000 over the course of four years

Illinois: Up to $50,000, with extra money for an extension beyond two years

Iowa: Up to $50,000 for a two-year commitment

Kansas: Up to $25,000 per year, plus smaller awards for subsequent years

Kentucky: Up to $80,000 for a two-year commitment

Louisiana: Up to $30,000 per year, with small amounts available for extensions

Maryland: Up to $50,000 for a two-year commitment

Massachusetts: Up to $50,000 for two years of service

Michigan: Up to $200,000 over an eight-year period

Minnesota: Up to $20,000 or $25,000 per year, depending on the program

Missouri: Up to $50,000 for a two-year commitment

Montana: Up to $150,000 over the course of five years

Nebraska: Up to $60,000 per year

Nevada: Award amounts determined by program administrators

New Hampshire: Up to $75,000 for a three-year commitment, with extensions available

New Jersey: Up to $120,000 over four years

New Mexico: Up to $25,000 per year

New York: Up to $40,000 for a two-year commitment

North Carolina: Up to $100,000 over four years

North Dakota: Up to $50,000 per year

Ohio: Up to $50,000 over two years, plus up to $35,000 a year for subsequent years

Oklahoma: Up to $160,000 over four years

Oregon: Up to $105,000 over the course of three years

Pennsylvania: Up to $100,000 over two years

Rhode Island: Amount varies based on service and debt

South Carolina: Up to $30,000 a year

South Dakota: Up to twice the University of South Dakota School of Medicine resident tuition (more than $200,000 as of May 16, 2018)

Tennessee: Up to $50,000 for a two-year service obligation

Texas: Up to $160,000 over four years

Utah: Up to $30,000 per year, including matching grants from a hospital

Vermont: Up to $20,000 per year

Virginia: Up to $140,000 over the course of four years

Washington: Up to $75,000 over three years

Wisconsin: Up to $50,000, with a minimum three-year commitment

Combine forgiveness with medical student loan refinancing

Medical school graduates have a lot of opportunities to manage their debt, Inman pointed out. Because of their high income, they’re also more likely to be able torefinance their remaining debt to lower interest rates after getting some of it forgiven.

“If you want to get to financial independence a little faster, look for a program where you can live in an area you like, get a little forgiveness for a two- or three-year commitment,” Inman said. “Then refinance the rest. You’ll pay down your student loans and build your savings that much faster.”

[PoF: Note that refinancing will take away the option to take advantage of PSLF, so be sure to rule out any possibility of pursuing PSLF before choosing to refinance. PSLF can be a great option for many physicians with above average debt, particularly those with long training programs or in specialties in which most jobs available involved working for a not-for-profit hospital or health system.

Cash Back Refinancing Bonuses

Related Posts from Physician on FIRE

If you’d like to receive personalized advice from a former Vanguard bond trader who has consulted on over 1,000 individual’s and couple’s student loan scenarios, or would like a second opinion, consider a consult from Travis, the Student Loan Planner.

If you owe more than $100,000 in student loans and aren’t 100% sure that you’re doing everything the right way, he finds projected savings of 125 times his consulting fee on average (that one-time fee ranges from $295 to $595). That’s tens of thousands of dollars.

If you’d like a custom plan, book a time at this link if you have more than $300,000 in household student debt and at this link if you owe less. You’ll get a consult form to fill out in your confirmation email. Make sure to mention that you heard about it from Physician on Fire on the consult form.

It’s almost impossible to include all of the possibilities given the number of programs that exist. For example, in North Carolina there is something called the FELS programs that will pay $14k per year of med school as long as you come back and work as a doc in North Carolina for every year you took the FELS money. So, up to $56k in relief for four years worked. If you were a NC citizen and already planning on living in NC, then this is basically free money. And you can even get it in private practice unlike the PSLF money.

Every medical student and resident should look into the state in which they go to medical school and the state in which they are a citizen (if different from medical school). It could really pay off, in the end.

One of the big mistakes I made in my life was to keep putting off paying my student loans (I did forbearance and deferment anytime I could). When my interest became principal through compounding they really had me hooked.

It is no fun paying interest on interest and I was on the wrong side of the financial equation.

By the time I started paying my loans in earnest I was making too much money and was phased out of interest deduction. I made (I think) a smart decision at the time and refinanced a big part of my student loans into a 2nd mortgage that then allowed me to deduct interest.

These forgiveness programs I believe did not exist when I graduated but it would have been nice to have options to consider (although I may not have been financially savvy at the time to take advantage of them since I didn’t see the financial light yet)

This points out that there are always more options. Too often people look at one option, find they don’t qualify, and then quit looking and say it won’t work for me. Just turn over another rock and you will find something.

My husband is a family medicine resident (graduating this week actually) and was just awarded the Nebraska State Loan Forgiveness. In case anyone else is thinking about going this route, it was a super easy application (took about ten minutes to complete and much easier than the loan refinancing applications). At least in Nebraska the state will take a refinanced, consolidated student loan (so long as other debt such as mortgage, credit card, etc isn’t lumped with it). Something else that’s a perk is this type of loan forgiveness isn’t considered taxable income and I’m pretty sure there is no criteria that states you have be a resident or a new graduate (so technically attendees can apply so long as they meet the other requirements).

The number quoted for average student debt DOES include undergraduate debt.

And the article does not mention the fact that payments made during residency under an IDR plan count towards PSLF. For many people that means 6 years towards the required 10 for PSLF. That can be a huge deal for many people. Practically any resident with loans should be ‘acting as if’ they will be going for PSLF, because those 6 years with a relatively low salary mean low monthly payments and potential a large amount of tax free forgiveness under PSLF.

It also does seem to glaze over the interest subsidies available under REPAYE and PAYE, but that doesn’t really seem to be the point of the article anyways.

All of that being said, people with student loans absolutely need to be aware of these options.